I often tell clients that every startup should have a strong relationship with an attorney, a CPA and a banker. Most founders have a relationship with the first two, but they typically miss out on the tremendous value that the right banker can provide.
3 Ways a Banker Can Support Your Startup
- Bankers can help construct a plan to make your startup bankable.
- Bankers can document cash flow and identify future revenue streams.
- Bankers can help your startup access other kinds of capital like grants or government funding.
Many entrepreneurs have the perception that bankers are too conservative and lack the creativity to be a valuable asset, but that is an old, outdated stereotype. Bankers are innovative and can be a huge resource, a secret weapon of sorts. You just have to know how to find the right one.
Why Bankers Are an Underappreciated Asset
Bankers have so much to offer an emerging company. A good banker possesses deep financial knowledge and expertise that can both educate founders and aid in essential decision making. Bankers can be a conduit to capital by providing loans or lines of credit to a growing business. They can also provide connections to potential investors. This kind of networking is crucial for startups.
Eager entrepreneurs with a hot, new idea can leverage a relationship with their banker to construct a game plan to go from “not bankable” to “bankable.” Bankers can advise new founders on how to best show the success of their concept, such as documenting their cash flow and showing the potential for future growth and revenue streams to the point that the company is ready to support a loan that will help propel it forward.
Bankers can also help entrepreneurs learn about or gain access to other kinds of capital such as angel investors, crowdfunding, grants or government funding targeted at specific industries. Startups need to access a variety of different kinds of capital across every stage of their growth, and a knowledgeable banker can potentially help them find the kind of financial support they need.
How to Find the Right Banker for Your Startup
As in any relationship, you have to ask questions to determine which banker might be the right fit for you. For example, do they have the right expertise? Do they understand the needs of your company? The right banker will take the time to learn about your market. They will understand your pain points, and proactively offer solutions that will help make your business better.
Are they responsive? Do they listen? How does their bank handle customer support? Will you have a point of contact, or do you always need to call a 1-800 number to reach them? You need to be able to pick up the phone and connect with your banker, whether it’s to ask a question about your accounts or to tap into their expertise and bounce an idea off of them.
Are they forward-thinking? Do they embrace technology? Find out how nimble your prospective banker is. Are they willing and able to customize banking solutions that meet your company’s needs? Are they using all the available technical resources to support your business? What value added services do they offer? A banker who provides mentorship, access to network events, or educational workshops targeted at entrepreneurs and founders is worth your time.
Don’t hesitate to ask a prospective banker for testimonials from other clients, and ask around for references amongst your peers. You can learn a lot about a banker by what others say about them.
How to Work With Your Banker to Get the Most Out of the Relationship
Once you’ve embraced the idea that a good banker will help your startup succeed, you need to invest a little bit of time to reap the benefits. Define your business goals and needs. You have to have a clear idea of what you want to achieve so you can communicate that to your banker.
Build a relationship with your banker, just like any other professional relationship. This could include scheduling regular calls and meetings to talk about how things are going. Set goals and discuss with your banker how best to achieve them and leverage the banker’s insights to make informed financial decisions.
Finally, set your expectations for what you want from the relationship with your banker. Evaluate your banker’s performance and provide feedback to them. The more you communicate your needs to your banker, the better equipped they will be to support you in the future.
Red Flags When Choosing a Banking Relationship
Not every banker will be the right fit for you. Lots of founders choose a bank based on name recognition or the fact that there are lots of branches, but those reasons are not always good criteria for a productive relationship. Beware of red flags that warn that you might not be getting what you need from your banker.
If they don’t communicate with you regularly, or don’t respond promptly when you reach out, you aren’t going to be able to use them as a sounding board or get timely advice. If your banker demonstrates that they don’t understand your needs by offering cookie-cutter products that don’t provide the support your business requires, it’s time to look elsewhere.
Beware of high fees and hidden charges. And absolutely pay attention to the financial soundness of a bank before investing your time there. For example, look at capital ratios and ask for a letter of financial soundness. If a bank or a banker can’t provide that to you, that is a huge red flag and a sign to find another option.
Tap Into the Resource of a Good Banker
Too often I talk to founders and it is immediately clear that their current banking relationship isn’t the right fit. They are invested in a relationship that isn’t providing any real value, and that is sad because they could be so much more well served.
Any person, founder or individual, knows that leaving a bank isn’t easy. That being said, I really encourage entrepreneurs to take the time to assess their banking relationship. If it isn’t contributing to the success of your company, then it is worth the effort to find a better fitting partner and make a change. The right bank can also help you with the transition process and make it a lot smoother for you. The payoff can be new connections, expertise, and financial resources that can help you reach your business goals.
